Swedish shift to left shows small-country flexibility

Sweden can set an independent course even though it is rather small by European standards.

WASHINGTON (MarketWatch) — As Scotland and Catalonia get ready to vote on independence, the current election campaign in Sweden offers an object lesson in how people in small-country democracies have greater control over their lives.

Polls show that Swedish voters, after eight years of a center-right government that cut taxes, are ready to let the pendulum swing in the other direction and elect a center-left government that is calling for, gasp, higher taxes to reduce the deficit and support more government services.

Sweden, of course, is the poster child for the high-tax “socialist” welfare state so reviled by American conservatives.

It is also, however, a society marked by an extremely high standard of living, a strong middle class and low levels of inequality and poverty, and a high degree of social harmony.

It is, in short, if not paradise on earth, one happy country.

And it’s not alone. Several other small West European democracies enjoy similar levels of peace and prosperity. These are the countries that rank among the highest in the annual “World Happiness Report” put out by Columbia University’s Earth Institute.

Switzerland, which no one would call a socialist paradise, continues to thrive. Its alpine neighbor, Austria, also enjoys enviable levels of prosperity and harmony. Sweden’s Scandinavian neighbors, Denmark and Norway, are on this list, too.

It was in fact an Austrian economist, Leopold Kohr, who inspired a whole “small is beautiful” movement, arguing that small autonomous communities offer a more humane environment. His 1957 book, “The Breakdown of Nations,” envisioned a Europe splintered into hundreds of small states.

Kohr — decidedly not a member of the so-called “Austrian school” of economists — in turn influenced British economist E.F. Schumacher, whose 1973 book, “Small Is Beautiful,” still enjoys a cult following of devotees who believe these notions will someday be vindicated.

It is worth noting that while Sweden and Denmark belong to the European Union, both countries declined to join the euro
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. Norway and Switzerland are not EU members, but enjoy the benefits of the Common Market through the European Free Trade Association.

You get the drift. Independence and autonomy contribute to a high-functioning democracy and a more resilient economy. Sweden, for instance, was largely sheltered from the impact of 2008 financial crisis and the ensuing euro-zone crisis.

Granted, Austria does have the euro, but its economy and currency were linked to its giant neighbor Germany long before the advent of the EU and the common currency, so that it does not suffer the same stress as other EU economies that are not so closely aligned to Europe’s dominant economy.

In Sweden, the Social Democrats, who dominated Sweden for most of the 20th century, are polling at about 30%, well ahead of the 20% for the Moderate Party, led by the current prime minister, Fredrik Reinfeldt, virtually ensuring that a center-left government will emerge from the election in mid-September.

“Our path is to increase taxes right now, so we can do some very necessary spending now,” Magdalena Andersson, who is likely to be finance minister in a Social Democrat-led government, told the Financial Times, “but also in the future we don’t see a need for further tax cuts, but rather for more investment in the public sector.”

Swedish voters, it seems, are ready to pay higher taxes in order to get better child care and stronger schools, among other things.

An independent Scotland, freed from the neoliberal legacy of Margaret Thatcher in U.K. politics, would also likely favor more progressive policies for a supportive social safety net.

Scotland, which is holding a referendum on independence Sept. 18, has a population of 5.3 million, comparable with other prosperous European democracies like Denmark (5.6 million), Norway (5.1 million), Austria (8.5 million), Switzerland (9 million) and Sweden with 9.5 million.

Catalonia, which is planning a non-binding independence referendum for November against the protests of the Spanish national government in Madrid, has 7.6 million people.

A small country embedded in a continent-wide common market but free to determine its own taxes and social policies starts to look like an ideal combination.

It is a different ideal than the one set out in the EU treaties, which envision an increasingly strong central power in a federation with a common currency and central bank.

It looks unlikely that Scotland, let alone Catalonia, will gain independence anytime soon, but the referendums could give these regions greater leverage to demand even more autonomy from their national governments, and so get closer to this ideal.

Separatist movements in Belgium and northern Italy, as well as in other regions of Spain, have similar motivations.

The “small is beautiful” vision of Kohr and Schumacher may yet have its day.

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